Developing commercial relations and the need for access to new markets drives commercial enterprises to establish branches or liaison offices in different places. This newsletter article will assess the differences in the legal principles and procedures that govern the establishment of branches and liaison offices.
Definition and Elements. There is no definition of branch under Turkish Commercial Code No. 6102 ("TCC"). However, Article 9/2 of Law No. 5174 on the Union of Chambers and Commodity Exchanges of Turkey and Chambers and Commodity Exchanges ("Law No. 5174") stipulates that "although connected to the registered office [headquarters], workplaces which have a separate equity and accounting or workplaces for which accounts are kept in a registered office and have no separate equity but perform commercial activities" shall be considered as branches. Therefore, the essential elements of a branch are; (i) to be connected to the registered office, (ii) to be independent, (iii) to operate in a different place, (iv) to have separate accounting.
Regarding branch operations, it is mentioned that the branch's operations should be identical or similar to the registered office's operations. Nevertheless, branches independently perform commercial operations1.
Consequences. The TCC regulates certain obligations for the branches of commercial enterprises. First, branches must be registered with the trade registry as per Art. 40/3 TCC and to the chamber pursuant to Law No. 5174. Therefore, branches of commercial enterprises having their registered offices in Turkey shall be registered to the trade registries of the place where they are situated. Paragraph 4 of the same article sets forth that branches of foreign-based commercial enterprises "shall be registered similarly to domestic commercial enterprises, but provisions pertaining to the trade name of their country of origin are reserved". For such branches, a commercial representative should be appointed with full authorization. Moreover, as per Article 9 of Law No. 5174, branches shall also be registered in chambers of the places where they are situated.
Second, pursuant to the Article 48 TCC, "all branches should use the trade name of the registered office by mentioning the qualification of being a branch". Branches of foreign-based commercial enterprises should "mention the locations of the registered office and the branch and the qualification of being a branch in their trade name".
In addition, since the branch is property of the commercial enterprise, pursuant to Art. 202 of the Turkish Code of Obligations ("CO") and Art. 11 TCC, in the event of the transfer of a commercial enterprise, the branch shall also be subject to the transfer unless otherwise stipulated in the transfer agreement.
It should be also mentioned that it is possible to file a lawsuit in the place where the branch is situated against the registered office pursuant to the Art. 14/1 of Civil Procedure Law No. 6100. However, this possibility of filing such a lawsuit is limited by the operations of the branch.
Opening a Branch. Commercial enterprises wiling to open a branch in Istanbul should file an application with the trade registry with necessary documentation and deposit a fee for this purpose. The related documentation is different for domestic and foreign-based commercial enterprises. However, there is no differentiation for the required documentation related to the type of the commercial enterprise (limited liability, joint stock companies etc.)2.
Definition and Elements. Pursuant to the Article 6 of the Application Regulation of the Foreign Direct Investment Law ("Application Regulation"), the Ministry of Economy is competent to provide authorization to commercial enterprises established under foreign laws that want to open a liaison office, under the condition that such liaison offices do not perform commercial operations. The Ministry of Economy is also authorized to extend this authorization. Article 8 of the Application Regulation stipulates fields of activity for liaison offices. Therefore, liaison offices may be defined as representation offices which are attached to the foreign-based commercial enterprise and which can provide services such as representation, hosting, securing Turkish suppliers as well as quality control and audit of these suppliers, communication and transfer of information, planning and researching without conducting commercial activities.
Thus, foreign-based commercial enterprises may open branches or liaison offices. It should be emphasized that liaison offices must not conduct commercial activities. Therefore, the expenses of a liaison office shall be entirely covered by the foreign-based commercial enterprise.
Opening a Liaison Office. Commercial enterprises that wish to open a liaison office in Turkey should apply to the Ministry of Economy with the necessary documentation. Pursuant to Article 8 of the Application Regulation,the Ministry of Economy shall provide authorization for 3 years at maximum. Therefore, it is necessary to apply to the General Directorate of Incentive Implementation and Foreign Investment before the expiration of the authorization in order to secure an extension.
Article 7 of the Application Regulation lists the required documentation for opening a liaison office. These documents are as follows:
- Application form;
- Declaration comprising the scope of activity of the liaison office and a declaration with a commitment stating that the liaison office shall not perform any commercial activity, and a document indicating the signature authorization for the person signing the document on behalf of the foreign-based commercial enterprise;
- Certificate of activity which is duly authenticated with an Apostille;
- Activity report or balance sheet and income statement of the foreign-based commercial enterprise;
- Authorization certificate to be provided to the person/persons authorized to conduct the activities of the liaison office; and
- Power of attorney in the event the establishment procedures shall be handled by a person other than authorized person/persons.
Foreign-based commercial enterprises have several possibilities for conducting business in Turkey. Two of these possibilities are opening a branch or a liaison office as detailed above. However, while evaluating these possibilities, determination of the scope of the company's activity is important since the liaison offices must not perform commercial activities, but rather aims to represent the commercial enterprise within the market and to provide it information related to the market. Subsequent to the determination of the scope of activity, application and authorization procedures shall be followed before the relevant authorities.
1. Poroy, Yasaman, Ticari İşletme Hukuku [Law of Commercial Enterprises], p. 49.
2. Within this framework, a detailed list with explanations (in Turkish) may be found on the Istanbul Chamber of Commerce's website for branches to be opened in Istanbul:http://www.ito.org.tr
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.